Clean-Air Rules Revive Demand for Dirty Coal

The dirtiest coal in the U.S. is becoming popular again. Now that more of their power plants can remove toxins such as sulfur dioxide (SO2 ), utilities are buying coal with the highest levels of pollutants after abandoning it decades ago in favor of cleaner-burning varieties from Appalachia and Wyoming. This is good news for coal producers in Illinois, home to some of the dirtiest coal reserves in the U.S. Last year demand for the state’s coal hit its highest level since 1990, as sales of competing Appalachian coal dipped and consumption of coal from Wyoming rose at a slower pace. “Here we are growing, while the industry’s shrinking,” says Michael Beyer, chief executive officer of Foresight Energy (FELP), an Illinois company with four coal mines in the southern part of the state.

Coal from the Illinois Basin, which stretches across the state and into parts of Indiana, Missouri, and western Kentucky, contains more sulfur than that from other regions of the U.S. It fell from favor after 1990, when an expansion of the Clean Air Act put limits on SO2 emissions, which cause acid rain. Over the next decade, utilities cut the amount of coal they bought from the region by 46 percent. By the mid-’90s, plants had started installing scrubbers that could remove 95 percent of SO2 emissions.

Today, more than 70 percent of U.S. coal plants have scrubbers. By 2025 all of them will, according to Wood Mackenzie, an Edinburgh-based energy consulting firm. That should boost demand for coal from the Illinois Basin. It’s cheaper than Appalachian coal and burns hotter than Wyoming coal, producing more energy. According to the U.S. Department of Energy, production from a region designated by the government as the Eastern Interior, which includes the Illinois Basin, is forecast to rise 9.4 percent in 2015, while production from parts of West Virginia, Virginia, and Kentucky is projected to decline 14 percent. Coal from Wyoming is expected to rise 4.4 percent next year.
In June, Foresight held an initial public offering and opened a $450 million mine in southern Illinois called the Viking Mine. In July, Sunrise Coal, a subsidiary of Hallador Energy (HNRG), bought Vectren Fuels for $320 million to gain access to mines in Indiana, Illinois, and western Kentucky. The Illinois Basin’s share of U.S. production will climb to 20 percent by 2040 from 13 percent currently, according to the U.S. Energy Information Administration. Environmental groups such as the Sierra Club have fought new permits in Illinois but have mostly failed to stop the expansion.

Investment is drying up in Appalachia. Two of its biggest coal companies, Alpha Natural Resources (ANR) and Arch Coal (ACI), plan to close as many as 13 mines in 2014. Making matters worse for the region, the Environmental Protection Agency’s Mercury and Air Toxics Standards rule goes into effect next year. Beginning in April 2015, all utilities will have to install expensive scrubbers in coal-burning plants to reduce mercury emissions, the same technology that helps remove sulfur. The scrubbers make all coal even in terms of pollution, says Jeremy Sussman, an analyst at Clarkson Capital. That means utilities make purchases based on economics. Illinois coal is cheaper to mine and transport than Appalachian coal, and it delivers more bang for the buck than Wyoming coal, he says. Illinois is closer to more coal-fired plants in the Midwest and Southeast than Wyoming, and its flat terrain is easier to mine than the rolling hills of Appalachia.

At its Viking Mine, Foresight is able to use giant shearing machines to cut slabs of coal 3-and-a-half feet thick along a flat surface 1,400 feet wide. The coal collapses onto a belt that moves about 3,000 tons an hour. While it costs millions to install this mining machinery, it’s a much more efficient way to mine—and a method that’s not feasible in most parts of mountainous Appalachia. “The Illinois Basin is really going to benefit the most,” says Hans Daniels, executive vice president of Doyle Trading Consultants. “You have the ideal location for mines. They’re in the heart of coal-burning country.”
“Sourced from BloombergBusinessweek.com Dec.1,2014”